State's debt rating outlook

Alaska editorial

Posted: Tuesday, September 03, 2002

This editorial appeared Aug. 28 in the Anchorage Daily News:

Alaskans may not care how they do it Outside, but some folks Outside care about how we do it here.

While acknowledging the basic strength of Alaska's economy, Moody's Investors Service has downgraded the state's outlook from "stable" to "negative."

That's not as grim as it reads. Negative is a notch above "credit watch," and Moody's has not changed Alaska's bond rating.

But the New York house is well aware of Alaska's stalemate over how to fill its fiscal gap.

Here's what it said:

"The state remains deadlocked over how to address future sizable projected budget gaps, as efforts to implement a modest broad-based state tax have been rejected by the legislature. (NOTE: Alaska is the only state in the nation with no broad-based tax; e.g. sales or personal income.) Other options for addressing the chronic structural budget imbalance include major spending reductions and accessing the excess earnings of the state's Permanent Fund. This latter choice would require the trade-off of reducing Alaska residents' annual dividend payment which is funded from the Permanent Fund earnings, a choice so far rejected by the legislatures and the voters."

The report also points out that the state draws 35 percent of its general fund spending from its savings, the Constitutional Budget Reserve, and that the CBR is projected to run out in 2004 or 2005. This "highlights the need for the state to develop long-term solutions to its structural imbalance."

The report further notes that "Alaska is the only state in the nation over the last five years to reduce the size of its budget."

Moody's sees the same situation every thoughtful Alaskan sees. We've got a problem, but we also have the wherewithal to solve it. We just lack the political will.

That's why Moody's decided to keep Alaska's bond rating high. "Our issuer rating of Aa2 is predicated on the assumption that the state will ultimately make the hard decisions necessary to fund state expenditures, but we expect the state finances to be under continued financial stress in the near future as these structural budget problems persist." What it doesn't say - yet - is that if state leaders don't set things right, the bond rating will go down and the cost of borrowing will go up.

In other words, Alaska's leaders have a job to do. The question for the general election campaign ahead is simple: Which candidates have the guts and savvy to do it - and the integrity to level with voters about it before the election?

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